Education Department Must Strengthen Proposed Rule to Protect Students From Rip-Off Clauses

Public Citizen and 40 Other Groups Submit Comments on Arbitration Rule

WASHINGTON, D.C. – The U.S. Department of Education’s proposed rule to protect students from forced arbitration clauses hidden in contracts with their schools falls short of protections needed to ensure all students ripped off by their schools can have their day in court, 41 groups said in comments (PDF) submitted on Monday.

Public Citizen and a coalition of consumer, student, veteran, civil rights and civil justice groups submitted comments to the department applauding the rulemaking, but they asked for critical changes to make it effective. Permitting schools to use agreements binding students to arbitrate later disputes as long as those agreements are not a formal condition for enrollment may leave some students who attend predatory schools worse off than they are now, the groups said.

“As experience demonstrates, some schools and their sales representatives will . . . affirmatively mislead students about material facts related to the agreements and engage in questionable techniques to pressure students to sign the agreements,” the comments read. The comments also emphasize that students wishing to challenge the agreements as unenforceable under state law will have to contend with new arguments by schools that the agreements are expressly permitted under federal law and have been deemed voluntary by the Department of Education.

A February petition (PDF) filed by Public Citizen – and supported by a coalition of 47 student, veteran, civil rights, consumer protection and civil justice organizations – helped spur the department’s proposal on forced arbitration, and we applaud the department for addressing the issue.

“The department must adopt a bright-line rule that forbids schools receiving federal money from using or relying on any pre-dispute arbitration agreement with students,” said Julie Murray, attorney for Public Citizen. “Predatory schools have shown time and again their willingness to lay new traps for the unwary. The department must anticipate the ploys used by unscrupulous schools and adopt a rule that is easily enforceable.”

The groups also called on the department to improve the rule in other ways. They asked that the department protect all students at schools that participate in the Direct Loan program, not just students who obtain federal student loans. They also called on the department to close a loophole in the proposed rule that defines claims covered by the rule more narrowly than what is necessary to protect students and taxpayers.

“If the department fails to address the shortcomings of its proposed rule, for-profit colleges will continue to immunize themselves from liability for a wide range of wrongdoing that injures a large number of students,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “The department is right to focus in this rulemaking on the harm caused by forced arbitration, but critical improvements are necessary to make sure the final rule has its intended, meaningful impact.”

In addition to the coalition comments, Public Citizen submitted its own more detailed comments, which can be viewed here (PDF).